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 The British central bank's policymakers said they would not match an
expected rate hike by the U.S. Federal Reserve next week, stressing
there was "no mechanical link" with its thinking.
In minutes of its latest policy meeting which ended on Wednesday,
the BoE expected the softer public spending cuts announced last
month by finance minister George Osborne would give a boost to
growth next year.
But overall, the tone of the minutes published on Thursday suggested
the Bank was at least a few months away from any move to start
weaning Britain off the stimulus of low rates.
Sterling weakened against the U.S. dollar and the euro and British
government bond prices rose.
"With inflation not expected to start edging up until next year, or
reach target until well into 2017, there is simply no need for the
Bank to consider changing tack," the British Chambers of Commerce's
chief economist, David Kern, said.
Britain's economy has grown strongly for more than two years but
inflation remains below zero and the BoE has kept rates at the level
to which they were cut during the worst of the financial crisis
nearly seven years ago.
Governor Mark Carney and other Monetary Policy Committee members
said the "material news" in the month since they had last met was
that oil prices had "fallen markedly again", which raised the
likelihood of inflation staying subdued.
They also highlighted a leveling off in wage growth in Britain,
something which is central to the Bank's deliberations on when
interest rates need to rise.
"Despite lower unemployment, nominal pay growth appears to have
flattened off recently," the minutes said.
The slowdown could be a blip in the numbers or the result of people
working fewer hours, they said.
It might also reflect employers offering lower wage deals because of
low inflation, something the Bank has said previously said could
hurt Britain's recovery.
"The Committee noted this effect was likely to reverse in due
course, however, as inflation increased," the minutes said.
SLOW INFLATION
The Bank reiterated that it expected headline inflation to remain
below 1 percent until the second half of 2016.
When the Bank first made that short-term inflation forecast last
month, it prompted investors to push back into late 2016 and 2017
their expectations of when the BoE was likely to finally start
raising rates.
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A top BoE official then warned investors against reading too much
into the Bank's projections based on market estimates.
Economists polled by Reuters have mostly said they expect the Bank
to start to raise rates in the second quarter of 2016.
As he has done since August, Ian McCafferty, an external member of
the MPC, voted to increase rates to 0.75 percent but all eight of
his colleagues favored keeping them on hold.
BoE Governor Mark Carney has previously said that the decision on
when to raise rates was likely to come into "sharper relief" around
the turn of the year. But more recently, he has said the Bank will
move when the time is right.
Carney's earlier messages about the possible timing of a rate hike
were knocked off course by surprises such as the plunge in oil
prices last year.
Another reason for the Bank to be cautious is Britain's planned
referendum on its membership of the European Union.
Economists polled by Reuters said uncertainty over the vote's
result, which could hurt business investment and growth, was the
biggest risk to Britain's economy in 2016.
The BoE said on Thursday that Osborne's moderated spending cuts
could add 0.2 percentage points to growth next year.
(Writing by William Schomberg; Editing by Catherine Evans)
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